Canadian social-media startup Kik Interactive has been slapped with a $100 million lawsuit by the Securities and Exchange Commission for selling unregistered tokens in one of the most high-profile mind-boggling cryptocurrency crackdowns yet.
Co-director of the SEC’s Division of Enforcement, Steven Peikin said:
“Companies do not face a binary choice between innovation and compliance with the federal securities laws,” in a press release.
“KIN” Token & ICOs
Kik had recently launched its digital currency “Kin” token which allowed users to perform transactions within its messaging app. The SEC (The Securities and Exchange Commission) in the U.S. accused Kik of conducting an illegal securities offering within their app. The company’s “Kin” token had brought in more than $100 million as a part of their 2017 offering.
The Kin tokens had the advantage of timing as they emerged on the market at the height of the initial coin offerings (ICO), boom. 2018 saw their fundraising bringing in a total $12 billion, based on estimates from Autonomous Next whereas EOS brought in $4.2 billion and Telegram brought in $1.7 billion.
This market boom was mostly driven by retail investors, which prompted the regulators to keep reminding that not registering tokens violates investor protection laws.
Crypto entrepreneurs, however, tend to disagree, as they demand the tokens to be not be viewed by the same measuring stick as traditional stocks.
Fighting Back
Livingston was vocal about their stand as he told the Wall Street Journal earlier this year that the company planned to fight the SEC’s expected enforcement action.
“This is the first time that we’re finally on a path to getting the clarity we so desperately need as an industry to be able to continue to innovate and build,
We are not going to do any violence to the traditional definition of a security that has worked for a long time. We’ve been doing this a long time, there’s no need to change the definition.”
Ted Livingston, Kik founder, and CEO said in a statement to CNBC. He seems to be confident in their stand as the company looks to clear its image and change the running trend of Scams from the cryptocurrency industry.
The company has launched a crowdfunding campaign to bring in much-needed funds to fight the SEC’s lawsuit head-on. The crowdfunding campaign is said to have raised $4.6 million so far according to DefendCrypto.org.
In an ICO, digital coins or tokens are sold as a form of crowdfunding or raising small amounts from a large number of investors. Instead of dividends or voting rights, cryptocurrencies provide premium access to a network or a future service.
But they’re often backed by an abstract idea or in some cases nothing at all as they do not have any physical value to ensure the integrity of their claims
The SEC accused Kik of marketing tokens as an investment opportunity and made claims which in turn led to a state of insider trading inflating the value of “Kin” Token in the process.
The company also allegedly said it would introduce tokens as a form of payment system allowing to make use of the tokes to perform transactions in its messaging app and build an incentive system that rewards other companies that adopt the cryptocurrency.
At the time of the ICO though, the SEC claimed that none of that existed. The January 2018 saw the Kin cryptocurrency reaching a market capitalization of $987 million, according to CoinMarketCap.com. It’s currently hit with a 97% drop as it is valued around $24.5 million now.
Last June, SEC Chairman Jay Clayton made it clear again that the agency won’t be updating the rules when it comes to defining this new digital asset class. Bitcoin and ether are the only cryptocurrencies the SEC has explicitly said are exempt from securities law.
All other initial coin offerings constitute securities, and as Clayton said, “If it’s a security, we’re regulating it.”
Whatever be the case news like these do not help change the image of cryptocurrencies in the eyes of those who are skeptical of the technology. However the success of Bitcoin, Ethereum and EOS is a reminder that the technology along with its foundation, Blockchain is here to stay.
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